WASHINGTON, December 8, 2014 – After another big drop in the price of Brent and West Texas Intermediate (WTI) crude oil, any stocks even remotely involved with the oil patch were pancaked as U.S. markets opened this morning. Worse, pretty much everything else on Wall Street joined in with oil’s Dance of Death, taking the Dow down some 150 points earlier today. At 3 p.m. EST, it’s looking like the averages are primed to take another run at today’s low.
These days, though, you never know, as the Fed’s top secret Crash Protection Scheme is likely prepared to intervene at some point either today or Tuesday.
Our last read on WTI has it down below last week’s record, sitting now at $63.18 bbl., off $2.66 on the day. The weird thing is, even midstream MLPs are off sharply today, even though their pipeline rental fees won’t really be affected by today’s lower prices, unless, maybe, we get near $30 a bbl., which seems to be a dubious proposition.
But investors are throwing the baby out with the bath water today, particularly the HFTs, even as optimistic retail traders try to buy the major oils at what they see as bargain basement prices. Jury’s still out on everyone at this point.
We do remind everyone, however, that the Saudis have claimed they’re comfy with oil as low as $60 bbl. So maybe we should all hold off on further panic until we drop decisively below that point, something that may or may not actually happen. The Saudis, of course, could lose control of the whole game. But at some point, what the pessimists in other sectors are missing, is that a prolonged weakness in oil prices could provide a tremendous tonic, at least for U.S. markets.
In this scenario, dollars and cents that have long gone into American gas tanks could at last be directed at other U.S. businesses instead, providing the kind of economic stimulus this country has needed all along, but that the current, ideologically blind administration running Washington has never encouraged.
Happily, perhaps, the U.S. economy is finally deciding to break away from state control and make money, just like all the major oils and wildcatters did when they decided to have a mass frack-a-thon on land that the government doesn’t own. As usual, though, time will tell.
The Maven has lightened up a bit on his oil holdings but is still suffering greatly today with what’s left and with pretty much everything else. Airlines and biotechs have seemed relatively immune from today’s huge downdraft, but that’s about it. Keep a cash reserve and wait until Tuesday, which, in 2014 at least, has often proved a more stable and positive day.
Today’s trading tips
As we’ve already mentioned, paring down oils, even for a loss, will preserve capital right now. These stocks may have a bit farther to fall, which is why we’re only staying with part of our holdings. No point in buying more until they sound the All Clear signal.
On the other hand, upon the recommendation of one of our investment advisory services, we picked up shares in the 2x short oil and gas ETF, otherwise known as DUG. That puppy is up nearly 8% right now, vs. our dying holdings in the major oils, which are presently bleeding from the eyeballs as are we whenever we think of them.
But watch it if you want to play with leveraged (juiced) or inverse (short) ETFs like this one, which is both. These ETFs are meant as very short-term trades, and are more often used as hedges, which is why we got into DUG today. (And wish we’d bought more.)
If you look away from these things for more than 3 minutes at a time, you could get flattened. So you need to be either an active home gamer, or work with a full service broker who will keep your eye on such an ETF when you’re stuck in a boring, mandatory 3-hour company seminar on how to lobby for Federal money. Please be careful.
The Maven got bloodied a couple of times until he learned how to roll with these leveraged inverse vehicles. Frankly, they should be illegal. But we do play with them in times like today, and they can be useful just as long as you have lunch at your desk and never ignore your screen.
One interesting possibility this week is the IPO of Lending Club (symbol: LC), a peer-to-peer lending company that’s coming public Thursday, December 11 after pricing the previous evening. Right now, looks like the IPO will come in around $10-11 per share, but if the price scootches up much higher, this one could be hot.
Peer-to-peer lending is basically people like you and the Maven chipping in $25, 50, 100 bucks apiece to put together loans for everyday people to borrow at whatever the going rate happens to be.
For years, the Maven has floated little pieces of loans to little guys via another (non-public) peer-to-peer lender optimistically named “Prosper.com.” Actually, it was Mrs. Maven who started this. But alas, she invested in a few too many subprime loans that went sour and lost a chunk of coin.
The Maven decided to bail the account out by participating in mostly higher quality loans. That strategy has paid off, carrying the account into plus territory again, save for a AA-rated miscreant who defaulted about 2 months into the loan. It happens. But you still get to feel like a bank in these loans and it is moderately fun (and often moderately profitable) to be on the receiving end of a loan. It makes the Maven feel like a mini-malefactor of great wealth, to tell the truth.
Peer-to-peer lending is actually an innovative idea. It’s been around for a while. (Mrs. Maven first got involved in Prosper circa 2006.) It remains to be seen if in can profitably scale up as a publicly traded business as Lending Club plans to do.
But in an era when banks are happy to loan to anyone who doesn’t need a loan and anyone who can’t possibly repay a loan, but refuse to loan to the average, honest Joe who could really use it and who would actually pay it back, peer-to-peer lending could evolve into something a lot more significant than it is today, so we may very well climb in to this one.
As for you? Travel at your own risk. If interested, be sure to read the prospectus. And check to see if your broker is in on the deal.
When it goes public, BTW, LC will trade on the NYSE, not the NASDAQ, a factoid that indicates the company has a bit of confidence in its own future, despite the fact it may be coming public during a very uncertain trading week.